You don’t have to be the winning bidder at a courthouse foreclosure auction to buy seized properties directly from the banks that own them.
With a knowledgeable real estate agent, a little research and some patience, you can negotiate a direct purchase of previously foreclosed property from the bank that holds the title – sometimes saving thousands of dollars in the process.
The last step in the foreclosure process – selling the home – begins at the foreclosure auction. Because the bank wants to recover the previous homeowner’s remaining mortgage debt along with any additional costs incurred during the foreclosure process, the price the bank needs to sell the property for is often higher than auction participants are willing to pay. Should the bank fail to sell the home at the auction, it maintains ownership of the property and lists it through a realty company. REO homes are those that did not sell at auction and become available on the open market.
The Advantages of Buying REO Property
Don’t assume that just because the home didn’t sell at auction that you can’t still get an excellent deal. Many banks list their REO homes at less than fair market value in an effort to ensure that the property sells quickly. In addition, buying a foreclosed home that is on the open market gives you plenty of time to have the home professionally inspected and base your purchasing decision on the inspection report – something you cannot do when buying foreclosed homes at auction.
Finding the Right Real Estate Agent
A knowledgeable real estate agent is a crucial asset when shopping for bank-owned property. Your real estate agent can help you locate REO homes available in your area and determine whether the homes are a smart investment based on recent local sales and current market conditions.
The greatest benefit of having an experienced real estate agent, however, comes during the negotiation process. Real estate agents with previous experience conducting REO property sales know how to successfully negotiate with banks. They can also answer any questions you may have about the process – alleviating any anxiety you may have about purchasing a foreclosure.
Making an Offer
When you find the REO home you want to make your own, you must submit an offer to the bank through your agent. Patience is important when making an offer on a foreclosure because banks typically take longer to review your offer and provide you with a counteroffer than other sellers. Buyers have been known to wait several weeks before receiving an acceptance notice or counteroffer from the bank.
Unless your initial offer is close to the bank’s asking price, it isn‘t likely to accept your first offer. You can expect to receive a counteroffer from the bank. The bank has a bottom line it must recover through the property sale, and banks will often aggressively negotiate for the most money possible when selling REO properties.
Consumers often mistakenly believe that banks are so desperate to unload REO homes that they will gladly accept far less than the asking price for a previously foreclosed property. This simply isn’t true. The bank’s primary goal is to make a profit. If the REO department believes it can get more for the home than you are offering, they will hold out for a better offer. You can realize significant savings by purchasing an REO home, but don’t expect the bank to practically give it away.
The REO Bidding War
You aren’t the only one out there interested in saving money by buying a foreclosure. Because of this, REO bidding wars are a relatively common occurrence. If more than one interested party bids on an REO home, the bank will call for a last bid. Your final bid should represent your best offer to the bank for the home. Your goal is to beat out other buyers while still purchasing the home for less than fair market value.
Keep in mind that the winning bidder isn’t always the bidder who submits the highest offer. Other factors influence a bank’s decision regarding who wins the purchase contract on the home. Bids from buyers who pay in cash, for example, are looked upon more favorably than bids from buyers who require financing.
The bank would like to remove the foreclosure from its accounting ledger as quickly as possible. Thus, including a quick closing in your offer can give you an edge over other buyers.
Inspecting Bank Owned Property
Once you have an REO home under contract, hiring a home inspector to examine the property and compile a report is a must. Even if the home appears to be in perfect condition, a closer look could reveal such expensive deal-breakers as faulty plumbing or a crawl space covered in black mold.
Should a home inspection uncover major property issues, you can ask that the bank pay to have the issues fixed prior to closing. Almost all banks market their REO homes “as is.” Fortunately, that does not mean that you cannot ask the bank to resolve any issues you uncover prior to closing. Some banks will incur the added expense of repairs while others will refuse, pointing out that the listing is being sold “as is” for a reason. Either way, it doesn’t hurt you to ask, and the bank may just surprise you.
When closing day arrives, be ready with your paperwork and have your finances in order. While closing delays are common, any delays you cause may cost you a significant amount of money in fees. REO contracts often include penalties the buyer must pay in the event of closing delays. If, for example, the penalty fee for delaying closing is $100, you would be responsible for paying the bank $100 for each day the previously scheduled closing is delayed. If the bank delays the closing, however, you are not responsible for paying a fee.
If you’re patient, dedicated and can handle the stress that comes from dealing with a corporation rather than another individual, opting to purchase bank-owned property rather than a privately-owned home can help you save thousands of dollars and reduce your monthly mortgage payment. Familiarizing yourself with the process as much as possible and enlisting the aid of a qualified real estate agent further streamlines the process – paving your way to home ownership.